Re: Recession

O.K. - you know more than Forbes, the Atlantic, and the Boston Globe. If you say so, I'll just have to take your word for it.

You can prove me wrong by showing me the law that requires lenders to lend money to borrowers that are not credit worthy.

And of course rk cannot prove you wrong because the law he tries to blame for the Republican inspired meltdown of World financial markets SPECIFICALLY FORBIDS lenders to use the law as an excuse to lower their standards for lending. For decades banks had used "red-lining" to prevent money from moving in to non-white neighborhoods, so those found guilty of doing this were required to lend more money to people in such neighborhoods.

But the total lent to these areas was less than 6% of the total mortgages that defaulted to cause the crisis. Kinda hard to explain how 6% of anything is the "driving force", so Republicans never mention this part of their story. Knowing their lofo base will never bother to read the legislation or look into the details of the jrbush Depression, they just keep regurgitating their Zombie Lies about Social Justice causing the problem.

Did you take the trouble to read the articles about how the actions of Barney Frank helped create the environment that allowed those evil banksters to do their thing?

For discussion purposes it would be more useful than just posting bumper stickers about "Zombie Lies" and "Social Justice".

Re: Recession

O.K. - you know more than Forbes, the Atlantic, and the Boston Globe. If you say so, I'll just have to take your word for it.

You can prove me wrong by showing me the law that requires lenders to lend money to borrowers that are not credit worthy.

If you'll read the items I believe you will see "permit" not "require".

And if you read the actual LAW, you will see it FORBIDS such reckless lending, and in no way shape or form "permits" it.

THE MARKET and the rapacity of Republicans COMPELLED the Banksters to write worthless loans to people who had NO CHANCE of ever repaying them because they knew the gutting of Government regulatory agencies by Republican legislaters made getting caught virtually impossible.

They even had a near-garenteed market for their bogus paper bundled into Mortgage Backed Securities - the foreign Central Banks who were holding all those hundreds of billions of dollars they earned from selling us more stuff than we sold to them who could not put the money into Government Guarenteed Treasury issues BECAUSE CLINTON BALANCED TWO BUDGETS, so they went for "the next best thing" - American Home Mortgages.

Re: Recession

O.K. - you know more than Forbes, the Atlantic, and the Boston Globe. If you say so, I'll just have to take your word for it.

You can prove me wrong by showing me the law that requires lenders to lend money to borrowers that are not credit worthy.

And of course rk cannot prove you wrong because the law he tries to blame for the Republican inspired meltdown of World financial markets SPECIFICALLY FORBIDS lenders to use the law as an excuse to lower their standards for lending. For decades banks had used "red-lining" to prevent money from moving in to non-white neighborhoods, so those found guilty of doing this were required to lend more money to people in such neighborhoods.

But the total lent to these areas was less than 6% of the total mortgages that defaulted to cause the crisis. Kinda hard to explain how 6% of anything is the "driving force", so Republicans never mention this part of their story. Knowing their lofo base will never bother to read the legislation or look into the details of the jrbush Depression, they just keep regurgitating their Zombie Lies about Social Justice causing the problem.

Re: Recession

If you'll read the items I believe you will see "permit" not "require".

Any bank or lender is permitted to lend money, the bank decides if the borrower is credit worthy, and if the collateral, the property, exceeds the value of the loan. Generally speaking the loan can't exceed 80% the value of the property. My old time bank has their own appraiser.

This was fraud by the lender, appraisers, rating agencies like Moodys.

These lenders weren't holding the paper, they were fine with bogus appraisals, and bogus ratings on bundled mortgage securities. They weren't the ones who were going to be left without a chair when the music stopped.

It wasn't low income " takers " the " government " " forced " " banks " to issue loans to, the majority of the loans went to middle and high income borrowers.

A decade after it began, the Great Recession is now commonly blamed on a subprime mortgage crisis – banks extending too many loans to low-income borrowers with high risk of default.

But ProfessorManuel Adelinofound that narrative doesn’t fit the facts.

Adelino, a finance professor at Duke University’s Fuqua School of Business, along with co-authorsAntoinette Schoarof MIT andFelipe Severinoof Dartmouth, reviewed nationwide income, home sales and mortgage data from the years before and during the financial crisis. They found the banking collapses that sparked the recession were the result of spiking loan defaults among buyers with higher incomes.

You found low-income buyers weren’t to blame for the financial collapse that led to the recession. How did you conclude that?

The subprime crisis argument is that the supply of credit to low-income households fueled increasing house prices, and was the source of the crash. We studied data on all mortgages originated in the United States between 2002 and 2006. We could see the size of the mortgage and the income reported by the buyers. We also had ZIP code-level data from the IRS, and we had access to a sample of mortgages for which we could see whether they were still current on their payments or had defaulted.

We found there was no explosion of credit offered to lower-income borrowers. In fact, home ownership rates among the poorest 20 percent of Americans fell during the boom because those buyers were being priced out of the market. Instead, we found credit was expanded across the board. Everybody was playing the same game. But credit expanded most drastically in areas where house prices were rising the most, and these were markets that were beyond the reach of lower-income borrowers.

The overwhelming majority of mortgages were going to middle income and relatively high income households during the boom, just as they have always done.

Even if low-income households weren’t getting more credit, defaults caused the recession. Don’t lower income borrowers default more often?

That is usually the case. You become a subprime borrower by having a low credit score, and you get a low credit score by defaulting on your debt obligations. It’s not surprising that mortgages that go to subprime borrowers have higher default rates because that’s how they became subprime in the first place.

But what caused the financial crisis was that middle- and high-income borrowers – including speculators who bought up homes to sell for profit – began defaulting at unprecedented rates. We had a crisis because non-subprime borrowers defaulted, where previously they very rarely had.

In 2003, 71 percent of delinquent mortgages were held by subprime borrowers. But by 2006, subprime borrowers were holding only 39 percent of delinquent mortgages. Not only that, there just aren’t enough low-income borrowers to bring down the financial system, it’s too robust for that.

Why does it matter if people get this wrong about the recession?

Because regulators responded based on the belief that there had been an explosion of credit given to low-income borrowers. They restricted mortgage credit to subprime borrowers based on the belief those loans had put the banking system at risk. This made it more difficult for people with lower incomes to get credit for several years, just as house prices were lower, when first-time buyers and those with less money would otherwise have been able to enter the market and help it recover. Home ownership rates among low income borrowers have collapsed since the crisis because of the active limiting of credit to those borrowers. This did not add any stability to the banking system as intended.

The financial crisis changed the way we do research in economics and finance. We now think there’s a link between the massive increases in default and foreclosures, and losses in long term economic growth. A deeper understanding of the housing market’s boom and bust can lead to better understanding for regulators and business when a similar situation occurs in the future.

So now what?

The " government " " forced " " banks " to lend money to middle and high income borrowers so they could speculate in a over priced unsustainable market, and then when that market collapsed the " government " " forced" them to walk away from their underwater mortgage?

I can understand how it's so much more desirable for you to blame the " takers " and not the lenders, but when all this was going on my little bank wasn't issuing mortgages, they knew better, they saw it coming, we all did.

No one said anything about the government forcing the banks to make loans, they merely set up circumstances where risky loans were no longer a risk.

Yes, it started with helping poor people get homes. But, as the boom "boomed" the numbers got a lot bigger and the income of those involved did increase quite a bit.

I seem to recall much negativity about the sub-prime concept being expressed here, but now that it is tied to Frank, it is ignored as a problem.